Ford Motors' Shares Plunge Amidst Quality Issues and EV Challenges

Ford Motors saw its shares drop by over 13% after missing second-quarter profit estimates due to quality-related costs and tough competition in the EV market. The automaker earned an adjusted profit of 47 cents per share, falling short of analysts' expectations of 68 cents. CEO Jim Farley has prioritized resolving quality issues since taking over in 2020.

Ford Motors' shares tumbled over 13% to a near six-month low on Thursday after the automaker missed second-quarter profit estimates, struggling with quality-related costs and stiff competition in its EV business. The Detroit automaker's adjusted profit of 47 cents per share fell well below analysts' expectations of 68 cents, according to LSEG data. In comparison, General Motors beat earnings targets on Tuesday.

Ford's shares dropped 11% in after-hours trading in New York on Wednesday, and its Frankfurt-listed shares fell 8% on Thursday. Ford is expected to lose about $7.22 billion in market capitalization at current share price levels of $11.86.

Warranty expenses surged by $800 million in the second quarter compared to the previous quarter, significantly impacting profits in its Ford Blue combustion and hybrid vehicle business. Analysts at Piper Sandler cited these 'unwelcome warranty headwinds' as the reason for the stock's slump.

"Ford referenced quality problems on vehicles from the 2016 and 2021 model years, and to address these concerns, the company is shouldering a higher-than-expected warranty burden," they said. However, Ford expects the second half of the year to align with its warranty cost expectations.

Ford CEO Jim Farley has made fixing the automaker's quality problems a priority since taking the helm in October 2020. The company hired a new executive director of quality and reformed some production practices to prevent errors, yet it still leads the industry in the number of recalls.

Legacy automakers have scaled down their EV ambitions amid slowing demand, a shift to hybrids, and fierce competition from Tesla and Chinese EV makers. "For now, shareholders will have to rely on quarterly and special dividends as compensation for volatile results impacted by warranty issues and slower launch ramp-ups," said David Whiston, an analyst at Morningstar.

Ford has a price-to-earnings (PE) ratio of 6.9 compared to GM's 4.7. So far this year, Ford's stock has risen about 14%, while GM has gained 29%.

(With inputs from agencies.)